Can Project Sakshat De-stress PSUs From Bad Loans Problems?The recommendations are by the Mehta-Committee

Increase in the number of non-performing assets (NPAs) has raised serious concerns about the health of the banking industry.

In fact, according to theReserve Bank of India(RBI), over 23,000 cases of bank fraud, worth Rs 1 lakh crore, have been reported in last five years. Additionally, as per the Financial Stability Report which was recently released the watchdog, NPA ratio may rise from 11.6 per cent in March 2018 to 12.2 per cent by March 2019 among the public sector bank.

If the numbers scare you, worry not because it looks the government has a plan to support our drowning public sector banks.

临时财政部长Piyush Goyalrecently announced the government has accepted a report submitted by the committee headed bySunil Mehta, Non-Executive Chairman ofPunjab National Bank. The report, which is dubbed as Project Sakshat, is 5-point agenda to improve banks' efficiency, create jobs along with improving the asset quality and bringing in more transparency among PSUs.

Apart from Mehta, the committee also includesRajnish Kumar, Chairman,State Bank of India(SBI),P.S. Jayakumar, MD and CEO ofBank of Barodaalong with C.Venkat Nageswar, Deputy MD, SBI. Highlights of the Project Sakshat are as follows:

SME Resolution Approach (SRA)

For bad loans under INR 50 crore, the assets will be managed under template approach along with a steering committee.

一旦资产标识,决议要d be completed within 90 days, the Mehta-committee advised.

Bank-led Resolution Approach

For loans between INR 50 and INR 500 crore, Mehta-committee recommends banks to enter into an inter-creditor agreement wherein the lead bank will be authorized to implement a resolution plan in 180 days.

If there is no resolution in 180 days, then these bad assets will be then moved to the National Company Law Tribunal (NCLT).

AMC/AIF-led Resolution Approach

For stressed assets worth more than INR 500 crore, the committee suggests the AMC/AIF route.

"An independent AMC would be set up, and AIF would raise funds from institutional investors. AMC/AIF will become a market maker and ensure healthy competition, fair price and cash recovery," Goyal said at the press conference in Delhi.

The AMC will be set up under Asset Reconstruction Company (ARC), suchArcil Ltdwhich is already promoted by banks, and would be funded by an equity contribution from banks, foreign funds and infrastructure funds.

The AMC will finalize the price of individual accounts after due diligence and once the asset is sold, turnaround specialists would be appointed. Furthermore, the asset would be sold down to strategic buyers over a period of time.

Asset-trading platform

The committee also suggested an asset-trading platform, wherein both performing and non-performing assets portfolio can be traded by the banks.

Even though the above mentioned recommendations are yet to receive RBI's nod, only time can tell whether Project Sakshat to resolve stress assets issue or the PSU banks will continue to stress